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National Audit Office Value for Money Report: Executive Summary

Evaluations of regulatory Impact Assessments 2005-06

Executive summary

1. The Government is seeking to reduce the burden of regulation on business, charities and the voluntary and public sectors whilst maintaining the protection afforded to society. Regulatory Impact Assessments (RIAs) have a crucial role to play as they are designed to enable policy makers to assess the need for, and impact of, new regulations. RIAs can be influential in identifying the appropriate regulatory option and ensuring that the policy decision is well informed. Achieving this, however, is not straightforward, as RIAs are often complex, lengthy tasks. This Report considers what departments are doing to raise the standard of impact assessment and integrate the results into policy-making.
    
2. In 2005 Government departments produced around 200 ‘Final’ RIAs covering a wide range of regulations, from the proposed increase in MOT fees to the introduction of the Gambling Bill. RIAs have been used to assess the likely economic, social and environmental impacts of the proposed regulation, and the range of options for implementing it. They have grown in scope in recent years as additional assessment criteria, such as sustainable development, have been added. The scope of RIAs is likely to change again in the future as they will be used to measure more rigorously how the introduction of new, or changes to existing, regulations affect the costs of complying with them.
    
3. A number of Government bodies have responsibility for delivering the Better Regulation agenda [Footnote 1] (Figure  1). Departments have primary responsibility for undertaking RIAs and, consequently, introducing regulations that achieve the intended objectives in the least burdensome manner. The Better Regulation Executive (BRE), which forms part of the Cabinet Office, has primary responsibility for taking forward the Government’s Better Regulation agenda. As part of this, the BRE issues guidance, and provides direct support and challenge to departments. It is also responsible for overseeing departmental progress against the Government’s two major initiatives aimed at reducing the burden of regulation: the Administrative Burdens Reduction exercise and ‘Hampton’ (Reducing administrative burdens: effective inspection and enforcement) [Footnote 2].
   
   
    
4. The National Audit Office’s previous Reports [Footnote 3] have shown that departments need to improve their use of RIAs to appraise the introduction of regulatory proposals. The slow improvement in the quality of RIAs has also raised questions over the way in which policy officials more generally perceive and use impact assessment. This Report therefore evaluates the extent to which departments are embedding impact assessment into their processes and culture. Part 1 reviews the role of RIAs; Part 2 sets out the results of our examination of a sample of RIAs; and Part 3 evaluates how departments are raising awareness and promoting the use of impact assessment. This Report focuses on the use of RIAs and does not seek to review the progress being made on Government initiatives to reduce administrative burdens or simplify regulations.
    
5. We focused our examination on four departments – Culture, Media and Sport (DCMS); Trade and Industry; Home Office; and Transport (DfT). Our methodology included an evaluation of a sample of RIAs; identification of the principles needed to achieve culture change, and an assessment of departmental performance against these; and interviews with relevant stakeholders. We piloted our methodology on the Department of Trade and Industry (DTI), as the Better Regulation Commission believed it would yield many examples of good practice. The scope of our work and full methodology is set out in Appendix 1.

Our findings

 Overall

6. RIAs are often not used in the right way. The purpose of RIAs is not always understood; there is a lack of clarity in the presentation of the analysis; and persistent weaknesses in the assessments (paragraphs 10 and 11). As a result, RIAs are only occasionally used to challenge the need for regulation and influence policy decisions – although they can still serve a valuable communications role, improving the transparency of departmental decision‑-making. The BRE is currently considering how to improve the effectiveness of RIAs, and is reviewing their focus, content, and the way in which key data and information is presented.
    
7. If used well, RIAs can offer an effective tool for assessing different options and identifying regulatory solutions that do not impose unnecessary costs on those being regulated. To achieve this, departments should seek to ensure that policy officials are technically competent in impact assessment and use the RIA as an integral part of the decision-making process. This will require departments to: offer appropriate support and advice; make best use of in-house expertise; have staff skilled in gathering data from external sources; and improve accountability for delivering good quality impact assessment. This Report highlights, however, that three of the four departments in our sample were restricted in their ability to deliver consistently on these areas. Only the DTI, one of the largest regulating departments, was already performing these roles.

The use of RIAs

8. Departments should use impact assessment to appraise the need for Government intervention which may require regulations or legislative change. In many cases, however, RIAs have not been used to question the need for intervention [Footnote 4] . Our analysis showed that the RIA process was often ineffective if started late, the policy area was politically sensitive or regulations needed to be introduced quickly. Departments should thus ensure that policy officials are aware of the circumstances in which an RIA is required but also seek to challenge the need for regulation earlier in the policy-making process. One notable example of ‘early challenge’ came from the DTI, which has established joint cross-Whitehall industry groups in five key industry sectors [Footnote 5] to provide a robust response to forthcoming policy proposals.
    
9. Even the best RIA is no guarantee that high quality regulation or the intended outcomes will be delivered. Departments have focused primarily on the introduction of new regulations and had largely neglected to evaluate the impact of new regulation after it is introduced. Departmental initiatives were either embryonic or isolated. The Department of Trade and Industry has examined the methodologies needed to assess ex-ante the impact of regulations within the context of consumer and competition policy, and is now considering how to undertake ex-post evaluation of regulations. The Department for Transport has commissioned research to evaluate the impact of the Traffic Management Act. We encourage departments to put more effort into evaluating the outcomes of new regulation; testing the robustness of assumptions used in the RIA; and learning lessons for future policy appraisals.

The quality of RIAs

10. The quality of RIAs in this year’s sample was mixed (Figure 2). There were examples of good practice, with strong performance in consultation, and improved practices in assessing a range of regulatory options. The weakest area was the consideration of the level of compliance with the proposed regulation and only 2 of 12 RIAs showed good quality analysis in this respect. Too many RIAs either neglected any consideration of this issue or unrealistically assumed full compliance. There was also room for improvement in considering how to implement, monitor and evaluate the recommended option.
    
    
     
11. There was inconsistency between policy officials’ understanding of the need for RIAs, when they should be started and the level of analysis required. The RIA should be proportionate to the likely impact of the proposal, so can be quite short if costs and benefits are likely to be small; the proposals only affect a few firms; or many firms to a small degree. Some RIAs included irrelevant detail and were too discursive, which obscured the key information needed to inform decision-making. It is appropriate that RIAs vary widely in size and content, but there was a general lack of consistency in the analysis undertaken and the presentation of results. The BRE’s proposed changes to the RIA process are intended to focus policy makers’ attention on the evidence and its presentation.
     
12. Figure 3 shows that, for the RIAs that we examined, all four departments had undertaken some high quality analysis. There was, though, at least ‘room for improvement’ in nearly half of the assessments undertaken. A summary of our assessment of all RIAs in our sample is provided in Appendix 2.
    
    
     
13. RIAs were often seen by officials as a bureaucratic task rather than being integral to the process of policy-making. The Department for Transport’s efforts to integrate better regulation into a more generic effort to improve policy is a welcome approach. We have identified a number of wider factors that would facilitate the integration of impact assessment into the policy making process:

• make clear that the RIA is necessary and that the level of effort put in to preparing the RIA reflects its importance;
   
• start impact assessment early and use the RIA to project manage the decision-making process;
   
• make greater and earlier use of departmental expertise and, as far as possible, embed expertise into policy teams;
   
• ensure that policy ‘thinkers’ and policy ‘implementers’ have the skills necessary to undertake their respective roles and are not operating in separate silos; and
   
• consider the training requirements of policy makers who only undertake RIAs once a year or less.
   

14. The quality of RIAs is likely to be improved if the policy official is aware of, and has access to, advice and guidance. The Better Regulation Executive has a responsibility to provide such support (Figure 1). Departmental views about the adequacy and timeliness of the Better Regulation Executive’s input were mixed. In particular, departments considered that advice was sometimes inconsistent or contradictory, partly due to staff turnover within BRE. The BRE also made changes to its guidance without consultation or communicating where changes have been made, which made it difficult for policy makers to keep abreast of the latest guidance. The Better Regulation Executive has undertaken a major re-organisation and is considering the nature of the advice it provides to departments. It will also re-issue its RIA guidance and develop a ‘RIA toolkit’.

Departmental attempts to embed impact assessment

15. There remains a perception, in parts of Government, that the requirement to complete RIAs is a bureaucratic task. Departments should be striving to instil impact assessment in the professional competence of their staff. The National Audit Office established a series of principles that are important in influencing staff behaviour and assessed departmental approaches against these. We found:

• on the importance of senior management commitment: Board Champions in each department had sought to promote the use of impact assessment. This is important because senior support for Better Regulation may act as a counterweight to assumptions in departments that making new regulations is a core activity;
   
• on the need for departments to promote the use of impact assessment and challenge the work of policy officials: challenging assumptions about policy is at the heart of Better Regulation. The ability of three Better Regulation teams to be proactive in encouraging the use of impact assessment and to offer a challenge to policy teams has been restricted over the last year, as a result of their involvement in the Administrative Burdens Reduction exercise. Our review coincided with a period of intensive effort from both the Better Regulation Executive and departments in measuring administrative burdens and formulating plans for simplification. This level of intense activity is likely to fall back. The DTI, however, has allocated additional resources into this area to ensure that the central team is capable of fulfilling its functions effectively. The Department for Transport has recently created three additional posts in its Better Regulation team to manage the increased pressures being placed on it;
   
• on making optimal use of expertise: assessing impacts requires technical expertise in the policy area, as well as a broader understanding of economics, law, risk management and enforcement activity. Departmental efforts were often hampered by poor project management of the RIA process, a low level of awareness of the availability of internal expertise and a lack of imagination in using external information sources;
   
• on the need to provide appropriate and timely support: there was scope to enhance the support to policy makers, in terms of offering timely, targeted training and making better use of intranet sites; and
   
• on the importance of clarifying responsibilities: there was a lack of accountability on policy officials for delivering good quality RIAs. This is vital if departments wish to raise the standards of RIAs.

16. All four departments have demonstrated a strong commitment to deliver better regulation and improve the quality of their impact assessment. The Department of Trade and Industry has been the most proactive in disseminating good practice and providing a robust challenge function to policy teams. The approaches of DCMS, Home Office and Transport to embedding impact assessment were, however, constrained as resources had been diverted to respond to the Cabinet Office’s Administrative Burdens Reduction initiative. As a result, these Better Regulation teams have been less able to raise awareness; provide appropriate support and guidance; and oversee the quality of RIAs. A summary of our assessment of each department is provided at Appendix 3. The role of Better Regulation teams is likely to become increasingly important as RIAs are used to measure the administrative costs of new regulations, as well as identifying the policy costs and benefits of regulatory options.

RECOMMENDATIONS

17. This is our third year of evaluating the quality of RIAs and overall results have been disappointing. RIAs are often done too late, with the wrong mindset and do not cover all policy interventions. They have not yet been a tool which has dramatically altered the regulatory landscape or the way Government thinks about regulation. In spite of this, we are not pessimistic about RIAs, which have the potential to improve the rigour and consistency of policy making. There are a number of actions that BRE, the BRC and departments should take to increase the effectiveness of the RIA process.
     
18. There are three ways the BRE should bolster RIAs. Firstly, it should re-emphasise that economics should lie at the heart of RIAs. This is not to say that RIAs are an exclusively pro-business tool, but that they should include consideration of market failure, counterfactuals, competition, and how consumers and organisations behave. Secondly, RIAs need to be supplemented by a broader toolkit that policy makers can use earlier in the life of a policy. This will allow policy makers to use the process to have an ‘initial look’ to identify the areas on which to concentrate resources and analysis. The process, however, must also extend beyond the RIA to include ex‑-post evaluation of regulatory outcomes. Thirdly, the BRE could re-emphasise the importance of the RIA process in challenging the introduction of new regulations. The BRC should also restate the sort of regulatory regime it considers ideal (for example, voluntarism, local discretion, codes of practice, doing nothing), so that RIAs can place policy proposals against this ideal.
     
19. Our recommendations are aimed specifically at the departments covered by our Report, but are presented under a series of generic principles that are applicable to all Government departments. The four departments have shown commitment to embracing the Better Regulation agenda and have responded positively to this examination. The challenge now is to turn words into action, by building on the good work already being carried out and spreading good practice further.
    
    
    
    6. Regulatory Impact Assessments and Sustainable Development, Briefing for the Environmental Audit Committee, National Audit Office, May 2006.  (Refers to the above table)
    
    
     

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1.  [back] The phrase the “Better Regulation agenda” is commonly used to encapsulate the range of initiatives intended to deliver regulation that provides necessary protections but is implemented in a cost-effective manner. Better regulation is that which accords with the Better Regulation Commission’s five principles: proportionate, accountable, consistent, transparent and targeted.
    
2.  [back] The Administrative Burdens Reduction initiative seeks to measure and then reduce the administrative cost of complying with regulations. The Hampton Report recommends measures for improving the way that inspections and enforcement activities are undertaken. More details of these initiatives are provided at paragraphs 1.11 to 1.16.
    
3.  [back] Evaluation of Regulatory Impact Assessments Compendium Reports 2003-04 (HC 358) and 2004-05 (HC 341).
    
4.  [back] Departments have not kept a record of the number of RIAs that reject the regulatory proposal or recommend the introduction of a non-regulatory option.
    
5.  [back] The five sectors are retail, automotive, bioscience, chemicals and construction.